Anchor is a protocol for saving and lending created by Seoul-based blockchain firm Terraform Labs.
The protocol is designed to drive demand for its stablecoins, including Terra’s native UST, which is pegged to the USD.
When it comes to savings, Anchor aims to give top stablecoin DAI a run for its money, by offering stable, outperforming returns. Since UST’s debut in 2020, Anchor has advertised 20% returns on its deposits. So far it appears to have delivered—with the stablecoin achieving yields of as much as 22% in 2021.
On the lending side of the equation, Anchor accepts staked tokens or bonded assets that earn returns as collateral for loans.
So what’s the big attraction?
Anchor aims to fill a gap in the DeFi space. For example, it offers a savings product with protection of principal and a stable interest rate. It achieves this by backing the interest rate with block rewards accruing to an asset, which also act as collateral for lending.
This is likely to give the product mass appeal, as crypto’s volatility to this point has meant it has lacked the stability that many investors want. The stable yields could appeal to a much wider community of investors.
Some commentators think the Anchor could become the ‘gold standard’ for achieving passive income on the blockchain, and as such could provide the pathway to broadscale adoption of decentralised finance.
How does it compare to DAI?
A major way UST differs from DAI is in setting a target interest rate of 20%, while DAI returns are lower and more variable. This could appeal to investors looking for stable high yields.
At this point though UST is much smaller than DAI, having about one-third of its capitalisation, and DAI remains at the top in the stablecoin stakes. Terra’s founder Do Kwan however is confident that before long, UST could be running ahead.
But either way it’s important to know that investing in UST is not risk-free.
Anchor stablecoin banned in Thailand
Meanwhile, in other news, the Bank of Thailand has banned Terra’s Baht-backed stablecoin THT. The bank claims that it could fragment and compete with the Thai currency system. This in turn could undermine public confidence in the nation’s financial system which underpins all of its economic activities, the bank says.
However, Do Kwan remains unperturbed by this news, as he believes that THT will be adopted despite what the bank says about it.